Brunswick Corp said sales in its the fitness segment grew to totaled $294.7 million in its fourth quarter, up 24.0 percent from $237.7 million a year ago. On a currency-neutral basis, sales grew 25 percent. Excluding acquisitions on a currency-neutral basis, sales increased 4 percent.
The segment added Cybex International Inc., a leading manufacturer of commercial fitness equipment, in January 2016. In July 2015, it acquired SCIFIT Systems Inc., a provider of fitness equipment designed for active aging seniors, medical wellness and rehabilitation markets. The fitness segment also includes Life Fitness and Hammer Strength, as well as Brunswick’s billiards business and InMovement products and services for productive well-being.
Sales in the U.S., excluding acquisitions, were up 2 percent in the quarter compared with the prior year, reflecting modest growth in sales to commercial fitness customers, including the impact of declines in sales to local and federal governments, said Bill Metzger, Brunswick Corp.’s SVP and CFO, on a conference call with analysts.
International sales growth, excluding acquisitions, “was solid, led by gains in Asia-Pacific and Europe,” added Metzger. International represented 42 percent of total segment sales in the quarter.
Fitness segment operating earnings in the quarter increased $8 million, as adjusted. Operating margins were at 16.3 percent, as adjusted, which was 50 basis points lower than the prior year. Segment earnings and margins were affected by benefits from the impact of the Cybex acquisition and higher sales, which were partially offset by the net unfavorable impact of a change in sales mix.
For the full year 2016, sales in the fitness segment increased 5 percent on a currency-currency basis, excluding acquisitions. For the year, operating margins as adjusted were 13.3 percent, or 140 basis points lower than last year, which is due in part to the impact of the Cybex acquisition, but also reflects the impacts of changes in sales mix and investments in growth throughout the year. In 2016, Cybex contributed earnings that slightly exceeded its initial targets.
“Our 2016 results reflect a solid growth rate in the U.S. and a strong growth in Europe, which together represents just under three-quarters of the segment’s sales,” said
Mark Schwabero, Brunswick’s Corp’s chairman and CEO, on the call. “Revenues in both regions are benefiting from the growth of franchised clubs.”
In addition, Europe is benefiting from recent investments in manufacturing capacity, he added. The third largest region, Asia-Pacific, experienced strong sales improvements in the year due to the combination of market growth and share gains in both Japan and China. In emerging markets, demand was lower, but trends improved throughout 2016 as the impacts of currency devaluations and commodity markets moderated.
Said Schwabero, “Our fitness business continues to benefit from solid overall demand, particularly in the global commercial fitness markets. While we have experienced uneven quarterly growth in the global revenue throughout this year, we remain comfortable with the overall demand fundamentals and our ability to capitalize on the evolving market opportunities.”
Brunswick Corp noted that it recorded a charge to earnings totaling $6.8 million its fourth quarter associated with the integration of fitness acquisitions, impairment of certain corporate assets, and severance costs related to the organizational realignment activity in its boat business. Total charges for the full year of 2016 were $15.6 million.
In 2017, it plans to incur between $11 million and $13 million of restructuring and integration costs associated with the fitness segment, including costs associated with the recent management transition. On January 18, Jaime A. Irick was appointed president of the fitness division. Irick, previously chief commercial officer for Current, Powered by GE, succeeded Christopher Clawson, president of Life Fitness, who left the company.
“Last week’s announcement of Jaime Irick as the head of the fitness division positions the fitness business to fully leverage its strength as a product leader, while building new capabilities to succeed as the larger portfolio of winning brands into traditional and new markets,” said Schwabero on the call.
For 2017, Brunswick Corp is expecting high single-digit revenue growth for the fitness segment. Driving the gains are expected to be continued growth overall in the global commercial fitness market, as well as contributions from new products, particularly in the second half of 2017.
Operating margins as adjusted are expected to improve in part due to the benefits from acquisition synergies and new products. Margins in the fitness segment are expected to return to 2015 levels by 2018 as the company works through integration, manufacturing and product plans.
“Overall, the fitness business is performing very well versus the market and is successfully executing its growth strategy,” said Schwabero. “The completed acquisitions, along with capacity expansion and new product development activities, are enhancing our ability to serve the evolving global commercial fitness industry and expand our offerings into adjacent markets.”
Photo courtesy Cybex
